A Government Company is established under the Indian Companies Act, 1956. According to the Indian. Companies Act 1956, a government company means any company in which not less than 51percent of the paid up capital is held by the central government, or by any state government or partly by central government and partly by one or more state governments.

Features: 

• It is registered under the Companies Act, 1956. 
• It has a separate legal entity. It can sue and be sued, and can acquire property in its own name. 
• The management of the company is regulated by the provisions of the Companies Act. 
• Employees are recruited and appointed as per the rules and regulations contained in Memorandum and Articles of association. 
• These companies are exempted from the accounting and audit rules and procedures. 
• The government company obtains its funds from government shareholdings and other private shareholders.

Merits 

• It has a separate legal entity, apart from the Govt. 
• It enjoys flexibility and autonomy in all management decisions 
• These companies by providing goods and services at reasonable prices are able to control the market. 
• The formation of a Government company is easy as compared to other forms of Government enterprises. 
• It can appoint professional managers on high salaries.

Limitations

• It evades constitutional responsibility as it is not directly answerable to parliament. 
• They are autonomous only in name. Company is operated by the controlling ministry. 
• The law relating to the companies, in general is meaningless for the government companies, as it requires fulfillment of various formalities.